Eurozone currencies extended their gains for another week. Global PMI and U.S. ISM data was
released on Monday and surprised to the upside, relative to market expectations. As the week began rumors of a “hard landing” for China were widely discussed, but manufacturing PMI was roughly in line with consensus. Despite the upside surprises in global manufacturing, the data highlighted an important divergence in growth, with China PMI and U.S. ISM declining and Eurozone PMI holding steady. The market narrative is quickly changing to one of Eurozone strength - led by Germany - and a lagging U.S. keeping rates lower for long(er). Labor numbers in the U.S. again disappointed with nonfarm payrolls printing at -131k (market consensus was -65k), and private payrolls 71k (versus 90k consensus).
The U.S. dollar trade weighted index (DXY) broke through the 200 day moving average to the downside last week as 10 year U.S. Treasury yields decreased 14bps to 2.82%. Quantitative easing in the U.S. was back in the headlines after speculation that the Federal Reserve will maintain its expanded balance sheet by purchasing Treasuries and MBS to replace maturing holdings. The Japanese yen appreciated to year-todate highs of (85.02) relative to the U.S. dollar and is closely tracking falling U.S. interest rates. The euro extended its gains by 1.8% this week and approximately 8% since June. Separately in commodities, agriculture was in focus due to Russian supply issue. Wheat prices rose 7.25% and Russia has banned all exports until Dec.31. Gold and oil were up 2% and 2.5% respectively.
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